Why not go back to the “Gilded Age”?

Why wouldn’t we like to return to the prosperity of 1870 to 1913?

In a recent press conference, Trump explained why he is so enamored with tariffs. "You know, our country was the strongest, believe it or not, from 1870 to 1913. You know why? It was all tariff-based. We had no income tax,” he said. “We had so much wealth we didn’t know what to do with our money. We had meetings, we had committees, and these committees worked tirelessly to study one subject: we have so much money, what are we going to do with it, who are we going to give it to? And I hope we’re going to be in that position again.”

The years from about 1865 to 1902 were called the Gilded Age, when the U.S. first moved ahead of Great Britain in industrial production. American steel production surpassed the combined totals of Britain, Germany, and France, and the U.S. economy also grew rapidly through railroad expansion and coal mining. The first transcontinental railroad in 1869 linked the Midwest and Great Plains with the East and West, opening new markets for commercial farming, ranching, forestry, and mining. The economy continued to grow during the early 1900s with the rise of large-scale manufacturing, including steel mills, oil refineries, and electrical power plants.

The government turned to tariffs as a source of funds when the Civil War income taxes expired in 1875. The early justification for tariffs was temporarily protecting the emerging domestic industries from their established European competitors. From 1871 to 1913, the average U.S. tariff on imports never fell much below 40%. The transition from a primarily agricultural society to an industrialized nation also led to the growth of a new American “working class.” A surge of immigration offset a shortage of domestic factory workers. The political justification for continuing tariffs was to maintain higher wages for growing numbers of workers.

The Census Bureau reported that the average wages of industrial workers, including men, women, and children, increased by 48% from 1880 to 1890. An economic historian, Clarence D. Long, estimated that annual incomes (in 1914 dollars) of “all non-farm” workers rose from $375 in 1870 to $573 in 1900, an increase of 53% in 30 years. Workers' wages continued to increase during the early 1900s, even though workers gained only about 10% in pay between 1900 and 1910.

So, why wouldn’t we want to return to an economy like the late 1800s and early 1900s? First, the economic progress during this period was not as smooth or widely shared as the gross employment and income statistics might suggest. The Gilded Age was certainly not a time when most people had so much money they didn’t know what to do with it. Major economic downturns, called Panics, of 1873 and again in 1893 led to runs on banks and widespread bank failures, each panic lasting several years. Livelihoods were lost and life savings wiped out.

Even though average wages increased, a disproportionate share of the economic benefits was captured by the wealthy industrialists whose businesses were protected from foreign competition by tariffs. From 1860 to 1900, the wealthiest 2% of U.S. households owned more than a third of the nation's wealth, and the top 10% owned about three-quarters. The bottom 40%, including the working class, had no wealth at all. The wealthiest 1% owned over 50% of the property, while the bottom 44% owned barely 1% of all property in the U.S. It's unlikely that many of the bottom 40%, or even the bottom 90%, thought of the period from 1870 to 1914 as a Golden Age.

The Gilded Age got its name from the title of a novel by Mark Twain and Charles Warner published in 1873. The novel characterized many of the leading figures of the time, including the greedy industrialists and corrupt politicians. Several later novels and historical accounts brought public attention to the growing economic and political power of the industrialists and their financiers and the resulting corruption and economic inequity. Despite the growth in the aggregate economy, the era became widely recognized among the working class of the time as a time of persistent poverty and growing economic and social inequality. As the disparity between the rich and the poor grew, the disproportionate economic and political power became more visible and contentious. So the novels and exposés of the Gilded Age resonated with those who had been betrayed politically and left behind economically.

John D. Rockefeller, Jay Gould, Andrew Mellon, Andrew Carnegie, J. P. Morgan, and Cornelius Vanderbilt were among those who were sometimes labeled "robber barons" by their critics. To their admirers, they were "Captains of Industry" who built the industrial economy. To their critics, their wealth had resulted from worker exploitation and government corruption. Their unearned and disproportionate wealth and political power eventually became a threat to democracy. In their later years, some of the robber barons, such as Rockefeller and Carnegie, became philanthropists, perhaps an act of patriotism or more likely an effort of atonement. Maybe these were the people Trump talked about who formed committees to help them decide how to give away their money.

The Gilded Era tariffs were regressive taxes because they fell disproportionately on the working-class people who spent virtually all of their income on everyday purchases. When Congress passed the 1913 Revenue Act that imposed income taxes, the cost of government shifted toward those who benefited most from industrialization and away from factory workers and other ordinary Americans who had generated the wealth of the industrialists. Income taxes spread the cost of government more evenly, according to a person’s ability to pay. The switch from tariffs to income taxes in 1913 also helped to break the power of the so-called robber barons or industrialists who controlled the U.S. economy and government in the late nineteenth century.

Historian Howard Zinn argues that this disparity in economic benefits and the working and living conditions of the industrial workers led to the rise of populist, anarchist, and socialist movements in the late 1800s. The progressive movement followed in the early 1900s, motivated primarily by an attempt to root out the political corruption of the Gilded Age. The progressives succeeded in bringing about primary elections of candidates (rather than closed political conventions), direct election of senators (rather than elected by state legislatures), initiatives and referendums (allowing the people to propose laws), and suffrage or voting rights for women.

The progressives also targeted the industrial monopolies by breaking up the corporate trusts, such as Standard Oil and U.S. Steel, and enforcing other antitrust laws to restore market competitiveness. Progressives also worked to improve working conditions, including higher wages, shorter hours, safer workplaces, and the prohibition of child labor. They supported reliance on scientific, medical, and engineering information to reform government and public education, and supported improvements in medicine, finance, insurance, industry, railroads, and churches.

The progressive movement set the stage for the New Deal of the 1930s and Great Society programs of the 1960s. But, the trends toward economic diversity, equity, and inclusion were reversed with the election of Ronald Reagan, which began a return, under both Democrats and Republicans, toward the philosophy of government that eventually led to the Gilded Age and ultimately to the Great Depression.

In many respects, today, we are already in an era similar to the Gilded Age. The richest 0.01% — around 18,000 U.S. families — have surpassed the wealth levels reached in the Gilded Age. These families now hold about 10% of the country’s wealth. By comparison, in 1913, the top 0.01% held 9% of U.S. wealth. In the late 1970s, before Reaganomics, the wealthiest 0.01% had only 2% of the nation’s wealth. By 2024, the top 10% of households, “by wealth,” averaged $7.2 million per household. They held 67.3% of total household wealth. The bottom 50% of households had an average net worth of $52,000 and held only 2.4% of total household wealth.

Between 1979 and 2021, the average income of the richest 0.01% of households grew nearly 27 times as fast as the income of the bottom 20%. The richest 1% averaged 139 times as much income as the bottom 20%. The top 20% of households, “by income,” averaged $3.8 million in wealth and held 71.1% of total household wealth. The bottom 20% of households by income had $160,000 in wealth on average and held 3% of total wealth. More than 30% of Americans today report having no wealth: a net worth of $0 or less. More than 20% of those 59 and older report that their total liabilities equal or exceed their assets. They are depending on Social Security for retirement.

Furthermore, the U.S. cannot return to the economy of the Gilded Age even if it chose to do so. The era of industrial growth in America is over. The industrial economic efficiencies of specialization, routinization, mechanization, and consolidation of control have been fully exploited. The U.S. no longer has the natural or human resource base to support an industrial economy. The resources and technologies needed to sustain economic development in the future will be fundamentally different from those of the past. The Biden era tariff policies focused on information technologies and renewable energy and were futuristic or progressive rather than backward-looking or regressive.

The U.S. needs a new progressive movement, not a return to an era when the government places import taxes on consumer products and cuts income taxes to enhance the wealth of the already-wealthy. Progressive simply means broad-minded, open-minded, forward-looking, rather than trying to return to the past. The government needs to focus on creating quality employment opportunities in the information and knowledge-based enterprises of the future, not on trying to regain jobs that no longer exist in today’s digitized, robotized manufacturing.

Publicly funded education needs to focus on preparing not only knowledge workers but also knowledgeable citizens who understand when their leaders attempt to mislead them into supporting policies opposed to their best interests, economically, socially, or ethically. Let employers pay for the job training and allow the government to focus on education. We need to move forward to a new era of sustainable prosperity in America, not try to return to some Golden Era that never was.

John Ikerd

Notes:

https://en.wikipedia.org/wiki/Howard_Zinn

https://time.com/5888024/50-trillion-income-inequality-america/?utm_source=substack&utm_medium=email

https://www.britannica.com/event/Gilded-Age

https://en.wikipedia.org/wiki/Gilded_Age

https://en.wikipedia.org/wiki/Howard_Zinn

https://en.wikipedia.org/wiki/Progressive_Era#:~:text

https://inequality.org/facts/income-inequality/

https://www.stlouisfed.org/community-development/publications/the-state-of-us-household-wealth

https://www.mcknightsseniorliving.com/news/one-fifth-of-americans-59-have-net-worth-of-0-or-less/